The 3 Safest Places for Young Adults to Put Their Money

Managing money can be challenging for people of all ages, but it's especially hard when you're young. You may not have much knowledge about many of the accounts where you can put your money. Since you're just starting out, you probably also don't want to do anything that will leave your savings at risk.

Everyone handles money a bit differently, but there are a few tried-and-true strategies. Below, you'll find safe places for young adults to put their money.

1. An emergency fund in a high-yield savings account

When you start saving money, the first priority should be building an emergency fund. This is your safety net for all that can go wrong in life. It's not exactly exciting, like investing. But you'll be glad you have one if your car breaks down or your work hours get cut.

The standard guideline on emergency funds is to save enough to cover three to six months of living expenses. If you have $3,000 in expenses per month, you'd aim for $9,000 to $18,000 in emergency savings.

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Yes, it's a lot, and saving it won't happen overnight. To build an emergency fund, set aside money for it every month. That could be $50, $100, or whatever works for you.

The best place for your emergency fund is a high-yield savings account. These have competitive interest rates, with some offering over 5% right now. They also let you access your money at any time. If you don't have one of these already, check out The Ascent's best high-yield savings accounts to compare options.

2. The stock market for retirement savings

The stock market might not seem like the safest place for your money. Isn't it known for its volatility? While it's true that the stock market goes up and down, historically, investing in it has been one of the most reliable ways to build wealth. It has delivered an average return of about 10% per year for decades.

When you're young, it's especially important to invest in stocks. You have plenty of time to ride out any short-term ups and downs. And those greater returns will make a massive difference in how much your money grows.

Let's say you can afford to invest $250 per month. If you do that for 40 years and get a 5% annual return from more stable investments, you'll end up with $380,519. If you invest it in the stock market and get a 10% annual return, you'll end up with $1.46 million -- over $1 million more.

You can invest in the stock market through retirement accounts, including 401(k) plans and individual retirement accounts (IRAs). These tend to be the best place to start investing, because they offer tax advantages. A taxable brokerage account is another option.

3. CDs or Treasuries for short-term savings goals

Most of us have our share of short-term goals. Maybe you have some money you want to set aside for a vacation, a new car, or a down payment on a home. If you'll need the money within the next five years, don't invest it. Since the stock market fluctuates, it isn't the right place for money you'll need in the near future.

You could put this money in a high-yield savings account. But if you want to lock in a high interest rate, you may want to consider certificates of deposit (CDs) or Treasuries.

A CD is a banking product with a fixed interest rate and term. For example, if you open a 1-year CD with a 5.15% APY, then you're guaranteed that rate for the entire CD term. You also need to keep your money deposited for the full term to avoid an early withdrawal penalty.

Treasuries are securities issued by the U.S. Department of the Treasury. Like CDs, they have a fixed rate and term, so they're another good option if you want a stable place to put your money.

Setting yourself up for success

As a young adult, it's important to build financial security in the present and the future. An emergency fund is a smart starting point, as having one will ensure you're ready for unexpected bills. Everyone should consider investing in the stock market while they're young because of the growth potential it offers. And if you have any money you want to set aside for some short-term goals, a CD or a Treasury could be ideal for that.